Bank Earnings Highlight Broad Strength

Bank Earnings

The big six bank stocks reported 3Q earnings this week, and all of them did not disappoint. We had been expecting strong results tied to higher NII, NIM, capital markets, M&A, and solid credit trends – and that is exactly what we got. Rank ordering them in terms of the results would be MS, WFC, BAC, JPM, C, and then GS. 

Morgan Stanley (MS) was the clear standout and beat on nearly every key metric. Return on tangible common equity (a key profitability metric) came in at a strong 23.5%, while equity trading jumped 35% and FICC trading rose 8%, both outperforming expectations.^[1] Wealth management continued its steady growth trajectory, up 13% year-over-year, supported by strong client engagement and asset inflows. The firm reported net new assets of $81 billion, underscoring ongoing momentum in client acquisition. Total net revenue reached $18.22 billion, well above estimates of $16.64 billion and up 18% year-over-year.^[2]

Wells Fargo (WFC) reported in line net interest income but guided for higher results in 4Q and 2026.  But the real story was the higher return on tangible common equity (ROTCE) guidance from 15% to 17-18% over the medium term, and that the new guide could go higher over time.^[3]  The other notable point was the commentary from management that they now have $30B in excess capital to deploy. These two points underscore the importance of the asset cap lift, which happened earlier in the year.  The company will be aggressively spending on a variety of initiatives to build back the market share it lost since 2017, which is when the asset cap went into place. Total assets have now surpassed $2 trillion for the first time in the company’s history, which is a significant milestone that underscores its scale and franchise depth. Wells Fargo also continues to hold a leading position across key business lines, ranking #3 in U.S. consumer deposit share, #3 in financial advisors among large peers, and #4 in total wealth client assets. The firm is actively expanding its presence in higher-growth segments such as credit cards, investment banking, and markets, and added 900,000 new credit cards in Q3, up 49% year-over-year.^[4]

Bank of America (BAC) delivered a strong quarter. The company beat expectations across nearly all key metrics. Net interest income (NII) impressed, rising 9.1% year-over-year, surpassing estimates of 7.6%. Bank of America also increased operating leverage by 560 basis points this quarter and is expecting the same amount in Q4.^[5] Equities trading posted 14% revenue growth, and consumer banking continued to demonstrate strong momentum, adding 212,000 net-new checking accounts. BAC also reported ROTCE coming in at 15.43% vs 13% last quarter. Now we await the 11/5 investor day, which is the first one in 15 years.

JPMorgan (JPM) beat analyst expectations in both trading and investment banking. The upside was fueled by a rebound in dealmaking and underwriting activity, with markets revenue up 25% and investment banking fees rising 16% year-over-year. Total revenue reached $47.1 billion, representing a 9% annual increase, while ROTCE came in at 20%.

Citigroup (C) beat estimates across all five of its major business lines. Total revenue rose 9% year-over-year, driven by broad-based growth across its markets, banking, services, wealth, and U.S. retail divisions. ROTCE was reported at 8% while net income climbed to $3.8 billion and earnings per share increased to $2.24, up from $1.51 a year earlier.^[6]

Goldman Sachs (GS) delivered a strong quarter, beating most estimates and reaffirming its leadership in investment banking. Total investment banking fees jumped 42% year-over-year to $2.66B, driven by a 60% surge in advisory revenue as dealmaking momentum accelerated. While equities trading came in slightly below expectations, the strength in advisory and underwriting offset that softness. Net interest income also topped estimates at $3.85B, reflecting solid balance sheet management and improved funding conditions. Lastly, ROTCE for GS was reported at 15.2%.

Looking ahead, the investment banking upswing appears far from over, with management noting that the quarter-end deal backlog is the highest in three years. Given the robust M&A pipeline and favorable market conditions, Goldman is well-positioned to capitalize on what could be a sustained 12–24-month tailwind for capital markets activity. MS also noted this on their call this week.

Capital Markets and M&A Strength

Global year-over-year M&A for pending, completed, and proposed deals is up 23%, while North America is up 40%. Investment banking activity has staged a strong comeback across major U.S. financial institutions, reflecting a renewed surge in dealmaking and capital markets strength. Morgan Stanley led the charge, with investment banking revenue up 44% year-over-year. Bank of America followed closely, posting a 43% year-over-year increase as corporate clients reengaged in M&A and capital-raising activity amid improving market confidence. Goldman Sachs also delivered impressive results, with investment banking fees rising 42.65% year-over-year.

Regulatory momentum appears to be turning more constructive for large banks, with meaningful progress expected by this fall and into the first half of 2026. Potential tailwinds from supplementary leverage ratio (SLR) relief, greater transparency around Comprehensive Capital Analysis and Review (CCAR), a recalibrated Global Systemically Important Bank (GSIB) framework, and a more balanced Basel III endgame all point toward a more efficient capital regime. A narrower capital buffer structure would unlock balance sheet capacity, enhance returns, and support stronger lending and market activity

Credit Quality Remains Healthy

Credit metrics across major U.S. banks remain solid, underscoring a resilient consumer backdrop. Credit card delinquency rates remain well within historical norms, with JPMorgan Chase at 2.14%, Wells Fargo at 2.69%, and Citigroup at 2.12%. These levels are consistent with pre-2020 averages and point to a consumer base that continues to manage debt effectively, supported by solid wage growth, healthy savings balances, and a stable labor market. Overall, credit quality remains in good shape, which is very important not only for the banking industry’s health but for the overall economy.  And it’s encouraging to see.

Slowing Balance Sheet Runoff

Federal Reserve Chair Jerome Powell indicated that the central bank may soon pause its balance sheet runoff, effectively slowing the pace of quantitative tightening to preserve liquidity in overnight funding markets. While slowing balance sheet runoff is not a formal rate cut, this shift represents a subtle form of monetary easing, as it helps maintain liquidity in the financial system and supports smoother credit flow. By halting the runoff, the Fed is effectively injecting stability into funding markets, which can stimulate lending, bolster market confidence, and ease overall financial conditions.

An end to balance sheet reduction is positive across multiple sectors. In the housing market, a controlled runoff stabilizes interest rates, making mortgage rates more predictable and encouraging homebuyers, while preventing asset bubbles through sustainable price growth. Banks benefit from higher net interest margins as rising rates widen the spread between lending and deposit rates, improving profitability. This environment also promotes lending discipline, strengthening banks’ balance sheets and capital reserves. For consumers, higher savings returns on accounts and fixed-income investments boost disposable income, and reduced liquidity encourages fiscal responsibility, preserving purchasing power in a stable economy. Meanwhile, AI investments thrive as capital shifts toward high-growth sectors, with investors favoring AI’s long-term potential and companies leveraging AI for cost efficiency.

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Sources:

^[1] Mogan Stanley: As of October 2025

^[2] Bloomberg: As of October 2025

^[3] Bloomberg: As of October 2025

^[4] Bloomberg: As of October 2025

^[5] Bloomberg: As of October 2025

^[6] Bloomberg: As of October 2025

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